IT’S A SIMPLE, statistical fact of life and business: No one can be 100% right, 100% of the time. And what has distinguished some of the most successful CUSOs at Maps Credit Union ($460M, Salem, OR) from the pack is not just their ability to be successful, but to pivot and adapt when they are not.
Read on to learn how four Maps service organizations embraced change and positioned the CUSO, its stakeholders, and its parent credit union for a more prosperous tomorrow.
As the first and only consumer reporting agency serving the credit union market, Advanced Reporting has tapped into a valuable, underserved niche. But the company — which required an initial investment of less than $50,000 — has undergone a few tactical facelifts over time.
“In the early ’90s, when Advanced Reporting started, it was a mortgage/ credit reporting agency,” says Elaine Rosenberg, the CUSO’s general manager.
“Back then, if you were making mortgage loans, you needed a third party to build credit reports.”
To call it “building a credit report” is no misnomer. At the time, reporting businesses had to pull down credit information from each of the three credit bureaus using modem lines.
Employees also had to contact the courts for information about judgments, employment information, salaries, and other variables a financial institution might need to reach a decision.
“As technology kept improving and changing the consumer reporting landscape, we were faced with the decision of, ‘Does the mortgage side of our credit reporting expand, do something different, or go away altogether?’” Rosenberg says. “We saw background screening services as one thing that would continue to be crucial to the financial industry.”
Credit unions have to be cognizant of all types of risk. Knowing whom to trust with access to member information, drawers full of cash, and vault keys is one of the most basic parts of mitigating risk. For this reason, Advanced Reporting began gradually shifting its business model toward background screening. It also expanded its clientele base through services such a tenant screening.
Today, the CUSO employs four investigators and leases marketing, IT, HR, and accounting resources from Maps.
“We’re experiencing growth in the 15% a year range,” Rosenberg says. “And we have clients that we’re serving nationwide.”
The CUSO stays busy managing its own regulatory demands — the consumer reporting industry has some of the toughest in the nation. But it is also tracking increasing regulatory oversight in the credit union space as a way to identify new products and services that cooperative clients might value.
“Over the past five to six years, a lot of financial institutions have failed due to actions of management,” Rosenberg says. “Those managers were sanctioned, and we offer screening where we can check lists to make sure you’re not hiring someone who was sanctioned at a federal level.”
Like all of Maps’ CUSOs, Advanced Reporting maintains its own strategic planning as well as its own board of directors. A couple of these individuals overlap with the credit union’s board, which ensures both companies are working toward a mutually beneficial goal.
CREDIT UNION WIRELESS, LLC
CU Wireless started as a CUSO that resold AT&T cellular phones, first providing wireless service to Maps members and then later serving roughly 30 credit unions nationally.
“Back in the mid-90s, when cell phone companies were establishing market share, they would give us good deals to get phones in the hands of our members,” says David Deckelmann, vice president of operational subsidiaries at Maps. “And we did it primarily as a value-added service. Later, the CUSO began buying wholesale minutes, packaging them up, and reselling them to our credit union as well as credit unions across the country. We would pay these credit unions based on the number of activations and the revenue they were generating.”
CU Wireless was unable to financially compete when Sprint came out with a similar credit union program, and the CUSO was forced to reinvent itself once again.
“In 2009, we started down the track where we are now, which is providing mobile banking services,” says Chris Giles, general manager of CU Wireless. “First with text banking, then apps, and now with our new Sprig mobile wallet.”
Sprig — which brings the shared branching concept to a mobile wallet application — was born out of the trouble CU Wireless had connecting its text banking product to different core systems.
“They’re all a little different,” Giles says. “Even two credit unions that have the same core system might be on a different version. The challenge was how to connect to cores again and again in a way that was efficient.”
A friendship between the CEO of Maps Credit Union and Sarah Bang, CEO of shared branching solutions provider FSCC, helped put CU Wireless in touch with a company that already had singular, seamless connections to approximately 400 credit unions.
“Through our conversations, we discovered an opportunity to do something that no one else was doing in the industry, which was providing mobile banking services to multiple credit unions simultaneously from under one brand or within one app,” Giles says. From there, CU Wireless added new capabilities, such as mobile deposit and P2P payments, to create an all-inone mobile solution for smaller credit unions that cannot build their own. Maps also applies many of Sprig’s capabilities to its own mobile banking app.
Looking forward, Giles believes point-of-sale payments is a likely next step for Sprig, but the CUSO is also looking for areas where all the big players aren’t headed.
“We want to take the little guys and level the playing field, so a member of any credit union can get mobile options as good as or better than what a Bank of America customer has,” Giles says.
CU Wireless currently serves approximately 400 credit unions, but its strategic partnership with FSCC — who has merged with shared branching provider CO-OP Financial Services — could extend the CUSO’s pool of potential clients to as many as 1,700 institutions.
The versatility demonstrated by CU Wireless is largely the result of its hiring strategy. The CUSO targets highly talented developers. For example, it uses Maps’ community and educational ties to recruit interns from the Multiple Engineering Cooperative Program (MECOP) — a pool of the top computer science and engineering students from five universities across the state of Oregon — and then transitions those individuals into fulltime employees after they graduate. Despite the higher salaries this level of employee requires, the CUSO’s staffing decisions save it time and money in the long run.
“A developer in the 95th percentile [skill-wise] can be three to five times as productive as somebody who’s in the 80th percentile,” Giles says. “It’s more than just getting 15% more production out of them.”
MAPS INSURANCE SERVICES, LLC
The cooperative’s foray into the insurance business through financial subsidiary Maps Insurance Services (MIS) has been a long-term play, growing and evolving in scope over time. Yet the stabilizing influence of this outside industry — which often runs countercyclical to trends in other financial services — has remained a consistent benefit for the credit union.
“Insurance, if it’s running well, can generate margins of up to 35%,”says Maps CEO Mark Zook. “If a credit union has a $2 million-commission agency, it could generate roughly $600,000-$700,000 in income a year.”
Although Maps had offered insurance products to its members for a number of years, in 2004, Zook — who at the time managed the credit union’s strategic planning efforts — convinced leadership to acquire an insurance agency in an underserved market, both as a business line expansion strategy and a brick-and-mortar one.
“We thought ‘Wouldn’t it be perfect if we could acquire an insurance agency in a community where we were eventually going to build a branch, and then just bring the agency into the branch?’ So that’s what we did,” Zook says.
Piggybacking off the foundation and associated business of its first acquired agency, the credit union also began hiring additional insurance representatives until the operation was able to expand into the Maps branch network.
“In the beginning, we primarily focused our personal insurance cross-sale efforts towards credit union members with an auto loan as a way to complement Maps’ loan portfolio and provide extra value to the membership base,” says Chris Federici, the CUSO’s general manager of insurance and investment services. “But over time, we also recognized opportunities to acquire market share outside of the credit union, which would allow us to generate enough revenue to reinvest in our platform and continue to expand as the credit union opens new branches in other markets.”
Following the closure by a large national bank of its insurance agency in the Salem region, the CUSO was able to procure five of these former bank employees for its own roster and begin exploring another particularly profitable side of the business — commercial insurance.
“Commercial insurance can certainly generate a disproportionate percentage of the revenue compared to personal insurance,” Zook says. “However, it’s very hard to get appointments with carriers if you don’t have a commercial insurance agent. And you can’t attract a commercial insurance agent unless you have appointments, so it’s a very tricky dynamic.” These hires also helped shape the overall dynamic and capabilities of the CUSO.
These hires also helped shape the overall dynamic and capabilities of the CUSO.
“We found that while we were using credit union philosophy and logic to manage the program, what is truly necessary to grow and compete at a top level in the insurance industry is an experienced and knowledgeable staff, who bring industry best practices and guidelines with them,” Federici says.
While not all of its expansion efforts have panned out, the MIS CUSO has successfully secured one additional agency acquisition which will be completed at the end of the year, is engaged in several ongoing conversations with other potential candidates, and has developed its own in-house expertise for navigating through these delicate financial and legal processes.
“In the early years, Chris and I often referred to outside experts in our outreach efforts, and I generally believe that you should use industry experts as you work through your early attempts at acquisition,” Zook says. “But we’ve had enough seat time with other folks to know what to look for, so now we tend to utilize experts only when unique situations arise.”
For 2013, as MIS moves through several key growth transitions, the financial goal is a break even proposition which includes reimbursements for the CUSO’s nine-person staff — who are leased from Maps — as well as the utilization of credit union support services such as accounting, IT, and marketing.
“After going through this last economic recession and seeing how our insurance business didn’t miss a beat, this is a nice additional revenue stream for any credit union looking to add to their bottom line,” Zook says.
MAPS ADVISORY SERVICES, LLC
Maps spent years envisioning having a registered investment advisor unit that could assist other credit unions with portfolio management, ALM, and other balance sheet necessities. But it struggled to acquire the type of traction within its local footprint that would make such a business model viable.
That all changed in 2008, when a credit union that Maps had partnered with on other CUSO initiatives began suffering as a result of ongoing economic turbulence. Seeing the relative stability of Maps’ own financial positioning, the credit union asked Maps to manage its investment portfolio.
“We researched it and determined we couldn’t do that in a way we were comfortable with without forming a CUSO and registering it with the Securities and Exchange Commission,” says Kevin Cole, chief financial officer at Maps and client relations manager for Maps Advisory Services.
The CUSO required less than $10,000 to launch and now manages approximately $20 million in credit union investment funds. It generates approximately $2 of net income for every $1 of capital it consumes.
Although Maps Advisory Services turned out to be a significant success, Cole warns that these businesses — just like any startup — typically cost more money than they make until they are able to establish a niche or other distinct proposition in their market.
“Never assume people are going to buy things from your CUSO just because it’s owned by credit unions,” Cole says. “For example, we learned with Maps Advisory Services that there is not as much demand for a full service investment advisor on the institutional side, but we think there’s an opportunity to take some of the tools we use to analyze investment decisions and make them available to other credit unions.”
At one time or another, each of these CUSOs encountered obstacles and market shifts that threatened their livelihood. But as Maps has proven time and again, the model of a lightweight, adaptable business grounded by a foundation of credit union funds and resources can succeed and thrive in a competitive marketplace.